Analysts from Goldman Sachs and MIT recently took a deep dive into the generative artificial intelligence (AI) market to determine its short- and long-term viability for investors.
The question looming over their research was whether the current AI market represents an expanding bubble waiting to burst, or the “pickaxes and shovels” stage of the next frontier for technology and industry.
Unfortunately, according to the report, the answer isn’t so simple. The marketplace differences that occur when a bubble is about to burst — as seen when the dot-com bubble burst — and a killer application is about to turbocharge a technology — as seen when Satoshi Nakamoto et al. invented cryptocurrency — can be too subtle to see until it’s too late.
Is AI a bubble?
The report features interviews with four Goldman Sachs economists and an MIT economics professor. Their prognostications were split between three Goldman Sachs economists predicting that AI’s killer app will come soon enough and the remaining Goldman Sachs economist and the MIT professor who appeared more skeptical, especially in the short term.
According to MIT professor Daron Acemoglu:
“Given the focus and architecture of generative AI technology today... truly transformative changes won’t happen quickly and few—if any—will likely occur within the next 10 years.”
Is AI’s killer application coming?
The counterargument appears to be that current investments and corporate expenditures aren’t all that radical compared to previous technologies’ market cycles.
While it is unclear exactly what the killer application for AI will be, current progress has led some analysts to believe that the current growth line can continue.
This is significant as the report states that analysts predict that “tech giants and beyond are set to spend over $1 trillion on AI capital expenditure in coming years.”
With this level of investment — much of it on infrastructure — the products and services derived from the investments must be strong enough to support and sustain current and future funding.
According to Goldman Sachs US software equity research analyst Kash Rangan, the outlook is positive despite the size of current investments:
“Spending is certainly high today in absolute dollar terms. But this capex cycle seems more promising than even previous capex cycles.”
Goldman Sachs U.S. internet equity research analyst Eric Sheridan expressed similar sentiments in their interview, stating that “it’s impossible to sit through demonstrations of generative AI’s capabilities at company events or developer conferences and not come away excited about its long-term potential.”
Realizing that potential, however, may come down to whether generative AI has its iPhone moment of mass adoption anytime soon.
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